Many financial services firms are unhappy with the support they are receiving from their national regulators as they prepare for the MiFID’s implementation, according to a survey by SunGard, a provider of software and processing solutions for financial services, and TradeTech, a research firm.
Furthermore, of those firms surveyed, both buy- and sell-side, 50% believe they will not know how to evidence best execution until the 1 November deadline.
The results are published as part of a year-long MiFID readiness survey undertaken in four stages between August 2006 and July 2007. The research catalogues changing attitudes towards MiFID, with responses from more than 300 financial institutions worldwide.
According to the report, half the respondents stated that their national regulators were either “bad” (32%) or “very bad” (19%) in helping them to get ready for the directive. In the UK, respondents were divided on whether the FSA’s minimal guidance, principles-based approach to MiFID was a good one. Only 54% believed that this is “the best approach to prevent regulatory overload”. The remaining respondents stated that this approach “makes it difficult to understand exactly what requirements the FSA desires, adding to the compliance task”.
However, the survey shows an overall increase in MiFID readiness, with 53% of respondents now believing their preparations for the directive are “ahead” or “right on track”, compared with just 34% in September 2006. Fifty-four percent of institutions surveyed state that they see MiFID as just “another piece of compliance”, and only 42% of respondents believe that MiFID will be good for Europe’s economy in the next five to 10 years, with over a third still undecided.
According to SunGuard and TradeTech, ensuring and proving best execution remains a challenge for many firms. Where once pre- and post-trade statistical analysis of trades were chosen as the processes most likely to be used to ensure best execution, manual review of best execution has now become an increasingly popular method, cited by 58% of respondents in July 2007, compared with just 29% at the start of the survey.
“Although it is a concern that many firms seem unhappy with the support that they are receiving from regulators, it is positive that others are seizing the opportunity to launch strategic reforms,” says Elias Nechachby, vice president of business development at SunGard’s Asset Arena business. “Buy-side systematic internalisation, enhanced sophistication of best execution support processes, new exchanges and new liquidity pools are a few of the initiatives that are reshaping the European financial services landscape – and making the vision of a single pan-European financial services market a reality.”
For both buy-side and sell-side firms, there has been a shift in attitudes towards systematic internalisation. Between September 2006 and April 2007, the split between those firms seriously considering becoming systematic internalisers and those not was consistently 30-70 respectively. In the past 3 months, however, this has changed to an even 50-50 split. For buy-side firms, 38% believed that the most common reason to become a systematic internaliser would be to drive down the cost of best execution. On the sell-side, European expansion was the greatest driver.